Tuesday, September 21, 2010

Beware the Elephant!

"Gridlock is good" - apologies to Gordon Gecko, Wall Street

This is curiously interesting: The Curious Capitalist (part of Time) reports that the Dem's do more for stocks than Repub's when the opposition party wins back Congress in a mid-term, creating gridlock. Idle chatter on top of that is that 2010 is shaping up like 1994, which helped launch the dot-com bubble. So the expectations of a change of Congress is driving stocks up.

While this chart is more intriguing than statistically meaningful, it does challenge that view. Maybe in general gridlock is good for stocks, but in a poor economy, Time argues it may be more bullish for Dem pump-priming to drive stocks up into the 2012 election.

If I were Obama, I would want the economy to tank again next year (as opposed to 2012) then hope that stocks and the economy would come back by the next election. He could cut taxes again, and do some cutting in government spending. Otherwise the economy remains in the tank next year, then the bottom falls out in 2012. Better to pull the plug this year.

Michael, which equities are you referring to? I assume not US equities:
Market peaked in Oct 2007, right before the start of the official recessionMarket bottomed in March 2009, turning just a few months before the recession endedMarket ran up into Nov 2009, tracking rising GDP into Q4Market began to sputter since, with two false peaks (Jan/April) almost in sync with lower GDPMarket went sideways all summer almost in sync with expectations giving way to lower growth ahead

Market crested Sp1100 in Q4 2009, and is only slightly higher right now - a flat year mimicking a poor recovery

What makes Michael, bulltard, think they are more credible than Roger? They kept predicting the market rising right before the flash crash. Did they predict the flash crash? No. Is the market at the year-high yet? The market isn't at the year high yet and they are pounding on the chest right and left that this is a bull market.

In their dictionaries, you can only be a bull or a bear. There isn't such thing as a flat market!!!

"Michael, which equities are you referring to? I assume not US equities.

Market crested Sp1100 in Q4 2009, and is only slightly higher right now - a flat year mimicking a poor recovery." - Yelnick

With all due respect, there have been plenty of tradeable moves in US equities. The problem with blogs such as this one is that the only thing that people seem to focus on are the broad market averages like the S&P. Yet, if you actually take a look at various stock sectors, there have been some dramatic percentage moves that have been highly tradeable and profitable. Traders are well aware of this. Newsletter writers like Prechter and bloggers like Daneric who drink from the same "Kool-Aid" are not.

Many people here (and on other blogs) seem to discount a 100 point move in the S&P, or a 10, 20, or 30% move in an individual stock and use catch-all phrases such as "the market has been flat". Try telling that to someone that actively trades Freeport Copper, Walters Energy, or Cleveland Cliffs . . . or Apple Computer or Greenhill Partners for that matter.

The bottomline is that if the Bears (and perma-bears) who believe that there is a strong correlation between equity prices and the Economy had been right about a "double-dip" and further economic weakness, the stock market as reflected by the S&P would have already sold off well below SPX 1000 by now to reflect a much lower P/E ratio of expected earnings.

Instead, the market is near 1150 after a 110 point rally during one of the seasonally weakest times of the year.

Michael, I take you you have backed off your assertion then, since your reply is non responsive. Saying there are tradable stocks & tradable moves is fine but belies your bold assertion about the broader economic trends.

There are many readers of this site who trade on a frequent basis. They find Neely's service more useful for that than the STU. They do swoop in and out with limits. They back out when the market is unclear; why take a low odds position?

Out in Silicon Valley a lot of folks (myself included) figured out to move into tech stocks at certain times, like Intel/MS in 1991 or the big Internet stocks in 2003. And I am surrounded by folk who have played AAPL (or so they say). Those are not hard calls to make.

All you are on about is the double dip isn't here yet. If you had been reading this blog as I know you do you would be aware that my opinion is it isn't until 2011, and right now signals are ambiguous. So anyone who follows in those beliefs would not be aggressively short due to economic expectations. So I wonder which hypothetical bear are you trying to flagellate? Maybe someone over at some other site.

But I am curious why you would say a market which was 1100 last Nov and was 1100 about two weeks ago is not flat? Depending on time scales, it has been flat since 1999, and it has been flat since late May. Sure there were tradable rallies and falls in between. So what?

There are many readers of this site who trade on a frequent basis. They find Neely's service more useful for that than the STU. They do swoop in and out with limits. They back out when the market is unclear; why take a low odds position?

I don't know why anyone would put themselves through the hell of trading the STU's counts.

There are bearish and bullish trades setting up non-stop on the charts. Once you realize that markets are NEVER in equilibrium, it becomes pretty obvious that they are going to have to move one way or the other and then they are going to reverse those moves. And then reverse those reversals. And so on and so on. As Morgan said, "The market will fluctuate". Well, the word "fluctuate" means that it will move in both directions. Ergo, you have to trade it in both directions. That's the easy part of the equation. The harder part is finding a trade trigger and trade/risk management methodology which is non-obvious and non-trivial. In that sense, finding a good trading strategy is like finding a patent.

"May both of them join Livermore in a place reserved for those who have inflicted more financial harm than any one else in history."

Has Neiderhoffer been in a coma since 2008? I wonder where he ranks Greenspan, Cheney and his lap dog? And lets not even talk about our pseudo banks that all went tits up and only survive today with handouts.

i'll bet it would trade just like the swings in expectations for the economy and not with economic indicators as they are released. that's common sense, i suppose.

but since very few people know what economic indicators are actually real and what indicators are unreliable, they trade on all of them ,,,, idiotic, as I see it.

since employment is nearly the be all/end all of econ. indicators, that etf would be down at least 50% and maybe more ,,,, and flat lined since 2008.

if the etf was based on real estate, it would have completed A and B of a probable zigzag down ,,,, with C probably developing as a shallow but very long diagonal.

the economy and politics and culture has quite a bit to do with the stage that the markets perform on. in my world, there is no play if there is no stage. lots of countries have no national economic stage like much of Africa or the new republics that arose from the crumbling of USSR's tyranny.

Any good high tech stocks coming out of Azerbaijan, Georgia, Uzbekistan or Kyrgykistan? Any low tech? But given the right stage, those might be great places for investing for the tomorrows, but not for trading today.

politics matters, order and stability matters, the rule of law matters, and, the economy matters because there is no economy without the preceding three players who run the theater with the stage the markets play on.

The common thread or member in those sets - politics, order/stability, law and economy is one thing - people and their money.

People will risk their money, and/or their blood sweat and tears if & when they don't have to keep looking over their shoulder at the government or some other looter. If they don't have those conditions they will leave. Smith and Bagehot got it right over 200 years ago.

Some fundamentals matters. Others don't matter much.

That's my 2 cents.

BTW, what is the best movie to learn about the trading mentality or mind set? (Hint: It's not about markets)

wave, my 'so what' was not about whether these are tradable rallies, but why argue the market is not flat when it is? Michael makes a sound point that the swings are large enough to be tradable, then dumps on some hypothetical bear who supposedly cannot explain large swings in a flat market. So what? Is this all about quien es muy macho? the day trader?

wave, interesting point of view. I think the impact of politics/economics on the market is a matter of time scales. In the short run the market can be jinked by news but is largely "technical". In the medium term it seems to be driven by earnings expectations. In the longer term by macro policy. Over decades it seems to oscillate around earnings growth. A day trader therefore needs to be largely focused on technicals and a feel for the tape so to speak - gaming the system. The US has created a much worse environment over at least the last decade; no surprise capital is flowing to emerging markets & we have had a Lost Decade.

Last post on 5-Sep, called for a move up into the 1130-1150 range on the SPX, followed by a U-turn. We're there now, and it remains to be seen, if there's gonna be an impulsive decline to follow. The likely location for the reversal is around 1150, or the upper line of the blue channel. A move back below 1130 would be the first step. The potential spoiler to this scenario is the rough Inverse H&S formation that is just breaking out.

"The one thing we desperately need is a culture change. Instead, we made too big to fail, too bigger to fail. We preserved a culture that benefits billionaires like Munger and greedy CEO's that helped cause this mess. That culture benefits no one else.

Yet Munger wants us to “suck it in and cope” and expect to be happy that he did not get wiped out.

You know what? It would have been a damn good thing if the culture died and assholes like Munger got wiped out. Munger just proved beyond a shadow of a doubt Wall Street's culture was not worth saving."

"You know what? It would have been a damn good thing if the culture died and assholes like Munger got wiped out. Munger just proved beyond a shadow of a doubt Wall Street's culture was not worth saving."

That would have been great to see all of those masters of the universe wiped out, unfortunately, they bought the politicians who will not let that happen.

"I think the impact of politics/economics on the market is a matter of time scales." - Yelnick

i can't agree more about this observation. The impact of politics and economics on the market is also a matter of risk perception. Bigger size, need a macro view to justify the risk, thus larger time scale or vice versa.

Although, for any capable money manager who didn't do anything and leave their portfolio unchanged since 2000 till now would be higher unlikely.

"I don't know why anyone would put themselves through the hell of trading the STU's counts.

There are bearish and bullish trades setting up non-stop on the charts. Once you realize that markets are NEVER in equilibrium, it becomes pretty obvious that they are going to have to move one way or the other and then they are going to reverse those moves. And then reverse those reversals. And so on and so on." - DG

"Michael, I take you you have backed off your assertion then, since your reply is non responsive. Saying there are tradable stocks & tradable moves is fine but belies your bold assertion about the broader economic trends.

All you are on about is the double dip isn't here yet. If you had been reading this blog as I know you do you would be aware that my opinion is it isn't until 2011, and right now signals are ambiguous. So anyone who follows in those beliefs would not be aggressively short due to economic expectations." - Yelnick

Yelnick, if you believe that the financial markets are highly correlated with the Economy ( as you consistently present here on your blog with everything under the ECRI sun ), and that the current "signals" are ambiguous . . . then why is their such a CONTINUED fascination on this blog with Prechter, EWI and their interpretation of Elliott Wave which has the market in P3 when they have been so embarrassingly wrong in equities and precious metals for so long?

Why is there such a fixation with the David Rosenberg's of the world who (as an Economist) couldn't trade their way out of a paper-bag?

Why the constant focus on people that have been terribly unsuccessful predicting the financial markets?

Is it because you yourself are a BEAR and wish to continually align yourself with others that share your viewpoint?

Even then, how is it that with all of the recent economic decelleration ( as noted by the Federal Reserve yesterday ) and your continued presentation of renewed weakness in the Regional Federal Reserve Districts and their PMI/ISM surveys... why is it that the S&P continues to trade at a hefty P/E ratio if the BEARS are right and the market is such a great "discounting" mechanism? Why is the S&P not already trading below 1000???

I can understand posting factual statistics regarding the month of September as being seasonally weak, because that is in fact a historical reality.

But let's be realistic.

. . . Although I enjoy reading your blog, there is without a doubt such an overly BEARISH tilt to what is continually being presented here that one has to really wonder (as someone genuinely queried in an earlier post) if you yourself are actually trading the market with your own capital.

As DG so eloquently pointed out, to sit back and take comfort or solace in the fact that the market as measured by the S&P is "FLAT" is truly missing the point.

In fact, it appears to be the kind of motto that most "perma-bears" like Prechter and Rosenberg take comfort in. In fact, Rosenberg can be quoted as saying as much in defense of his horrible track record over the last 12 months . . . and yet you CONTINUE to highlight his economic assertions. Why bother? What does it have to do with the stock market?

To me, hiding behind the "market has been FLAT" argument is a loser's game. It has nothing to do with making money.

After all, as TRADERS isn't that why we are all here? . . . to make MONEY?

Don't get me wrong...I'm all for discussing various insights and opinions and seeing if they are realistically applicable to the markets and can consistently make money . . . But I'm rather puzzled why you continue to highlight the perspectives and opinions of people that have had embarrassingly poor track records, and who obviously have very little contact with trading the financial markets.

In fact, if it wasn't for the occasional mention of blogger/trader Carl Futia, I doubt that we'd ever see a BULL featured here on your blog.

Perhaps if you got away from all of the predictions of where the S&P may, or may not be going (which can be fun and entertaining, but not all that constructive). . . and actually focused on a stock sector or two, your blog would have more REAL WORLD application towards making money in the equity market.

After all, isn't that why we're all here in the first place . . . to make money?

In the short run the market is technical, not driven by macro stuff, but it paints a useful context.

And yes, traders can clip profits in a choppy market, although I have found since playing the short side after 2000 that it is harder to clip on the bearish side than the bullish side.

I am bearish although not a P3er because of the macro environment. Right now the tea leaves are ambiguous enough that maybe we are skimming along the bottom and not dropping any farther. I may become cyclically bullish in Nov depending on things, as we might have a nice re-election rally.

You love EXAS .. what I am watching and participating in is the bubblet occurring in consumer Internet deals. There is a story on this in the WSj marketplace today, and I may blog about it. Point: even in a bad market there are pockets of opportunity all around.

the macro matters huge at certain times and that is one of the few lessons I have had to learn more than once. for example, I didn't recognize the real impact when on Sept 18th 2008, harry reid stepped to the microphone, after Paulson and Bernanke had spoken, and Reid uttered the stupidest words ever uttered in the midst of a crisis (regardless of what caused it). He leaned forward and pathetically said, "Nobody knows what to do."

I was so frikkin mad because I knew Bernanke and Paulson did know what to do ,,,, the original intent of TARP. what I missed in the following days was how dramatically the macro had shifted and 'had crossed the Rubicon' toward crash mode. Smart money knew Reid and Pelosi would opt for a political stance because they did not recognize the obvious severity and breadth of the problem. ,,, and the time Congress took to finally get something done was directly related to their offensive speeches at anyone Repub., bankers , etc. It nearly tossed the global payment and financial system into the chitter.

For a short while, I missed that macro shift from a perceived bearish market to nearly an actual catastrophic proportions. I might add that the crisis was exactly what the Obama camp wanted ,,,, and got.

Pelosi and Reid will always be remembered as Benedict Arnolds, and as the proximate cause of how deep the economy and financial system dropped when it was at the brink of collapse. For me, you can't argue that politics don't matter to markets.

i learned a similar lesson during the Carter presidency. i hate re-learning! :) it's expensive!

(speaking of Carter, he said the other day that he has been the greatest post-President ever) roflmbo what a narcissist putz!

wave, best trading movie?? Trading Places was fun, there was a dog of a movie called something like Boiler Room, but perhaps you are referring to a drug movie whose name I forget which had a great trader scene in it.